ey - building new dimensions for real estate growth

Building newdimensions for real estate growthSeptember 2013

2 | Building new dimensions for real estate growth

The Indian real estate and construction industry, which is an integral part of the Indian economy, is passing through challenging times. Traditional methodologies have been put to test, providing an exciting phase for developers to evaluate new growth channels.

The sector, riding high on the back of rapid urbanization, positive demographics and increasing income

Indian economy, rising input costs and overall global economic sentiments.

In the current scenario, developers are evaluating alternate sources of real estate funding, as traditional fund-raising channels are increasingly facing challenges. New guidelines such as Land Acquisition and

in acquiring land banks for development. Further, the relaxation of SEZ guidelines will also provide the required stimulus to the industry.

New opportunities have also evolved in the sector over the past few years, providing an impetus to developers to expand their portfolio. Development of these asset classes, such as affordable housing, senior living, entertainment real estate and transit oriented real estate development is gaining momentum

SIREC 2013 will bring together experts from across the country, particularly South India, to exchange ideas, innovation and knowledge on latest concepts, trends, technologies and policy issues that can

I wish the conference a grand success!

J C Sharma

VC &MD, Sobha Developers Ltd.

Foreword

3Building new dimensions for real estate growth |

Over the years, the real estate sector in India has grown to become one of the fastest growing real estate

effect that it imparts to the economy. This is evidenced by the fact that the contribution of the real estate

1.

Favorable demographics, along with a large young population base, rapid urbanization and rising income levels are some of the key drivers fuelling the growth of the Indian real estate market. Interest in the real estate market is not limited to domestic demand as foreign investors and Indian expatriate community continue to invest in the sector.

The Indian real estate sector has traditionally been an unorganized sector; however, with foreign investments and increased number of corporate houses entering the sector, it is slowly evolving into a more organized one. Apart from traditional asset classes such as residential, commercial and hotels, several new asset classes such as student housing, senior citizen homes, luxury homes, holiday homes and education institution spaces are on the rise. Government policies have been instrumental in providing support to

in sales volume, increasing cost of raw material, reduction in margin pressure, and strict regulatory environment.

With international real estate players making their foray into the Indian market, there have been multiple

international best practices. Introduction of real estate investment trust and phasing out of restrictive regulatory norms relating to foreign direct investment is the need of the hour for continued growth in the sector.

This knowledge paper adopts a holistic approach while examining key trends in the real estate industry, viable funding options, new land acquisition bill, emerging technologies for better customer experience and various emerging asset classes in India. Join us, as we take on a fresh perspective on some of these aspects

Gaurav Karnik Partner, Tax and Regulatory Services

ContentIndian RE market moving ahead against headwinds

6

South India real estate: an update 7

Key trends 18

Building blocks for growth 23

Emerging asset classes in India 31

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II

III

IV

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| Building new dimensions for real estate growth

Indian RE market moving ahead against headwinds The global economy is showing signs of revival with the growth in housing and energy sectors in the US and Europe set to be on the recovery path. The International Monetary Fund has

mostly stable as compared to 2012 levels.2,3 Although the

to be a year of consolidation for corporate occupiers in their

some domestic factors affected the country’s GDP. With global economy showing signs of revival and the Government of India (GoI) taking positive steps, the Indian economy is expected to

estate and facilitate the next growth wave in the sector.

short term. However, some micro-markets will continue to out-perform others even during this period. In the commercial segment, while the inventory has declined in the last couple of years due to low development activity, absorption has remained slow, since corporates have deferred their expansion plans.

year plan and the country’s demographic sweet spot with rising urbanization and young population, the long-term prospect is still strong. The real estate sector has been facing a liquidity

housing from the commercial real estate category has resulted

the housing sector.

With an aim to protect the interest of customers, promote fair play in real estate transactions and to ensure timely delivery of projects, the GoI is seeking to pass the Real Estate Regulation

Cabinet nod in June 2013. Though foreign investments in the sector and large corporate houses venturing into the sector have raised the corporate governance and transparency, the bill will further facilitate this and will also improve consumer

compensation plan is expected to reduce litigations and delays for large projects.

The property market is also witnessing some structural changes with developers gradually coming out of the four year down cycle. Developers are now focusing more in their regions, are selling their non-core businesses and in turn improving their balance sheet. Unlike in the past, when several large developers had over leveraged their position to build land banks, developers are now proceeding with caution and increasingly exploring a joint development model. Several new asset classes have also emerged in the real estate segment in the last few years.

Although broadly the real estate market across the country is facing challenges, certain micro-markets have outperformed market estimates. The South Indian market too is unique in its growth pattern and demand dynamics. This report explores the South Indian market highlighting the key trends in each state.


South India real estate: an updateWith rising visibility and growing transparency, demand for real estate in the southern states has been consistently increasing.

become the mega-cities of tomorrow.

The common drivers behind the growth of real estate in southern states are an educated population with a total of

4 and services

salaried professionals, the region is witnessing new-age entrepreneurship and rising domestic and foreign investments creating an ecosystem that is favorable for growth of businesses.

stock to be located in these states.the country’s IT/ITeS SEZs are located in South India. Thiruvananthapuram

Chennai

Bangalore

Hyderabad

Kolkata

Bhopal Ahmadabad

Lucknow Delhi

Chandigarh

Jaipur

Mumbai

Andhra Pradesh

Tamil Nadu

Karnataka

Kerala

0

1,000

2,000

3,000

4,000

5,000

2008-09 2009-10 2010-11 2011-12 2012-13

INR

bill

ion

Andhra Pradesh Karnataka Tamil Nadu Kerala

Comparison of GSDP at constant prices (2008-09 to 2012-13)

Source: MoSPI; *FY13 data for Kerala was not available

Comparison of per capita NSDP at constant prices (2008-09 to 2012-13)

Source: MoSPI; *FY13 data for Kerala was not available

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2008-09 2009-10 2010-11 2011-2012 2012-13

INR

Andhra Pradesh Karnataka Tamil Nadu Kerala India


The southern states have consistently been among the leading states in the country on key economic and social indicators. Tamil Nadu has a strong manufacturing base especially in auto

IT hub, Andhra Pradesh’s strength lies in the biotechnology and pharmaceutical industry, tourism is an important advantage

for general engineering and auto ancillary. The workforce in these industries constitutes a consistent stream of potential

real estate. The demand is not only investor driven but also

The cities are well connected through international airports, rail and road infrastructure. Many transportation projects (such as

rail corridors) are underway to provide better connectivity. The South Indian states not only provide comparable infrastructure facilities but are also reasonably priced making them ideal investment destination to domestic as well as foreign investors.

Karnataka

the country on the back of well-developed social, physical and industrial infrastructure developed to facilitate the growth of businesses and industries. The state’s gross state domestic

7

economy is driven by knowledge-based industries such as IT, biotechnology and engineering. The state leads in electronics

the primary real estate markets in the state.

Bengaluru

it is the third most populous city in India after NCR (National Capital Region) and Mumbai.

A major part of the city’s growth can be attributed to the

100 research and development (R&D) centers and a preferred

third-highest among the top eight cities of India.

of software exports from India. The state currently has 2,200 registered software units and 70 hardware units, a majority

ITeS activity, the city is also witnessing enhanced activity levels across diverse sectors such as aerospace research, biotechnology and textile sector. The city is ranked third among Indian cities in attracting foreign direct investment (FDI) — total

2000 to April 2010).10 On account of these growth drivers, the population has increased, from around 4.13 million people in

11

people in 2011, which translates to a decadal growth rate of

organized residential real estate market. The rising migrant

GSDP.12

The city’s growing young population, robust economy, and

destination for investments, thereby, providing an impetus to the real estate sector.

Building new dimensions for real estate growth |

inadequacies attributed to increasing population density. Some of the key infrastructure initiatives undertaken are highlighted in the table:

Project Description

Mysore. Currently, phase 1 of the project is operational.

Metro Rail The Reach I (operational since Oct 2011) has provided enhanced connectivity to Old

connectivity is expected to improve with the commencement of other reaches of Phase 1 and proposed Phase 2 development.

Peripheral Ring Road The proposed Peripheral Ring Road is 110 km long and 100 meter wide with

to circumnavigate the city linking the major highways such as Tumkur Road (North

This is expected to provide enhanced connectivity to the Airport and have a positive impact on the overall connectivity of the city along with improving infrastructure in

the years, the city has witnessed growth in East and South directions, primarily due to IT/ITES-related developments along the Outer Ring Road. As is evident in the schematic, the established commercial growth corridors are in Sarjapur-

activity also spread around these regions. With the setting

focus of the real estate sector has shifted to this region due to excellent potential for planned development and the focus of infrastructure projects that are expected in the region.

eight new residential and industrial clusters to decongest the city. The clusters will include industrial areas currently in their

Nelamangala, Dobbspet-Peenya, Doddaballapur, Anekal-Jigani-Attibele, Devanahalli-Vijayapura, Magadi and Hoskote-

13

investment destinations. The IT/ITeS sector has propelled

into the city. Planned infrastructure projects and increasing investments of multinational companies are expected to have a positive impact on the city, which is expected to drive demand for the real estate sector.

International Airport

Devanahalli

Electronic City

Yeshwantpur

Hebbal Flyover

White eld

Sarjapur ORR

Yelahanka

M.G. Road

Metro Alignment Peripheral Ring Road Airport Expressway

Outer Ring Road Existing Growth Corridors Future Growth Corridors

Source: EY Research


Mysore

14

While tourism and handicraft were the major industries in Mysore, the growth of IT/ ITeS and industrial sectors has led to overall economic growth of the city. This economic growth is expected to further enhance with the improving

NICE corridor (currently under development) is expected to

order to facilitate development of Mysore as a satellite city of

The demand for property in Mysore is a spill-over effect of

up base here. Large scale industrial growth has attracted

residential real estate sector in Mysore.

real estate landscape of the city. Expected to be completed by the end of December 2013 or early 2014, it will reduce the commuting time between the two cities from about 3 hours

dynamics on the investment and industrial scene.

Andhra Pradesh

17 the state’s economy has been largely driven by IT/ITeS, pharmaceutical,

country’s total IT/ITeS exports. It continues to be the fourth-largest IT/ITeS exporter state in the country. The total FDI

The state has maintained steady focus on the development of roads, ports, IT and commercial complexes, and power and urban infrastructure. As of 2013, 31 public private partnership (PPP) projects had been completed, with

20

INR210 billion. The Government of Andhra Pradesh also recently undertook the development of non-major ports in

two international airports, at Hyderabad and Visakhapatnam, while domestic airports at Tirupati and Vijaywada are proposed to be upgraded.21

In order to accelerate the development, the Government of Andhra Pradesh has taken various policy initiatives. The Information and Communication Technology (ICT) Policy

till 2012, which has also contributed to the demand for residential real estate. The Andhra Pradesh Solar Power Policy (2012) and the Industrial Investment Promotion Policy

state to promote sustainable industrial growth.22

The real estate sector has grown in tandem, with the state’s

poised to grow further, driven by increased corporate interest, which will lead to growth in jobs and income. The state has

23

from September 2013.24

Hyderabad

Hyderabad is the capital city of Andhra Pradesh. It has a

making it the fourth most populous city in India.

The city from being a prominent trading hub of South India has evolved into a manufacturing hub with focus on food and beverages, chemicals, pharmaceutical industry, etc. Over the last decade, the city has emerged as an important IT/Pharma/bio-tech hub of India. Hyderabad also gained prominence as an important seat of learning in South India with the presence of prominent universities such as Osmania and Jawaharlal Nehru Technological University (JNTU), Indian School of

over time Hyderabad has established itself as a manufacturing and services hub.


Hyderabad region enjoys enhanced connectivity via road, rail and air to key locations and is also well connected with

well as State Highways.

Real estate development in Hyderabad started picking up since 2000 when the global IT companies began to look at it as an

2011, the population of Hyderabad grew at three times the rate of growth in the total population in AP, and is expected to more

1,300 global IT and ITeS players in the city that account for

of Gachibowli and HITEC City, and north-western markets of

Gachibowli are some of the major IT business districts and have the maximum number of SEZ developments in the city.

Several infrastructure initiatives have been undertaken by the Government of Andhra Pradesh to reduce the infrastructure inadequacies attributed to the increasing population density. Some of the key infrastructure initiatives undertaken are highlighted in the table:

NH 9

NH 7

NH 9

NH 7

Shamshabad

Uppal

Medchal Shamirpet

HITech City

Narsingi

Outer Ring Road Inner Ring Road

Existing Growth Corridors Future Growth Corridors


Gachibowli

Source: EY Research

Project Description

Outer Ring Road (ORR) Developed by the HMDA , The key objective of this project is to facilitate better

divided into 2 phases as highlighted below:

Phase 1 ~ Length ~ 22 km stretch (Cyberabad to Hyderabad International Airport) which

Patancheru). Operational since Q2 2011

airportMass Rapid Transport System (MRTS)

Hyderabad Metro Rail has been conceptualized to connect the important hubs in the city

Aerospace park SEZmaintenance services to aircraft companies. It is the only SEZ in India to be equipped with runway access and state-of-art aircraft repair and maintenance infrastructure.


Hyderabad boasts of some of the best infrastructure projects in the country that are well planned with a focus on future growth corridors. However, recently, the city has witnessed contraction in demand due to political and other macro-economic factors. In the short term, capital values and rentals are likely to remain stagnant with a negative bias as supply is outstripping demand. However, the city is expected to witness revival of demand on account of recent political developments and cost arbitrage provided by the city as compared to other cities such as

Visakhapatnam

In the recent past, real estate development in Visakhapatnam has been driven by the spillover from the development at

coastal corridor, the city is also home to the largest proposed special development zone, called the petroleum, chemical and

sq km.27

sectors, followed by petrochemicals. The Jawaharlal Nehru Pharma City, developed through a PPP model has 17 pharmaceutical companies. The Government of Andhra Pradesh has been focusing on developing infrastructure, which will lead to development in residential and commercial segments. The

Visakhapatnam Urban Development Authority (VUDA) also has affordable housing, mid-income housing and green living projects in its pipeline, which is expected to cost more than INR1.2 billion.

Tamil Nadu

The eleventh-largest state by area in the country and the seventh-largest by population , Tamil Nadu is one of the most urbanized Indian states. According to the 2011 census, the

the total urban population in the country.30 Tamil Nadu is the second-largest contributor to India’s GDP. Tamil Nadu’s GSDP

31

Automobile and auto-components, IT/ITeS, textile, engineering and pharmaceuticals have been the key drivers of the state’s

capacity.32

the vital role played by service sector and manufacturing in the

33 The software exports from the

The state had a per capita net state domestic product of

It also ranks third among the Indian

billion during April 2000 to June 2013.

High urbanization, large-scale presence of manufacturing and service industry, growing economy and presence of two major

and industrial real estate across the state. The Government of Tamil Nadu plans to develop ten cities, which will become the engines for economic growth and boost the demand for real

37 The Government of Tamil Nadu also plans to develop an integrated satellite township near the

the real estate sector across India.

Chennai

Chennai, formerly known as Madras, is the capital city of

Chennai’s economy has a broad industrial base in automobile, hardware manufacturing, and health care industries. The city is amongst the largest exporters of software, information technology (IT) and information-technology-enabled services

40

Traditionally, Chennai has been a port city with the economic activity primarily driven by port and port-related activities such as trading, exports, other ancillary industries, etc. However, Chennai’s economic activity has witnessed a complete transformation over the years and the city has emerged as one of the fastest growing commercial and industrial destinations in India. The primary economic drivers for the city include the

information technology and trading. Other important industries

Chennai is home to many global corporate giants and is one of

Hyderabad.


The Government of Tamil Nadu has undertaken various initiatives to attract large national groups and MNC’s to establish industries/ campuses in the city. As a part of this

west) as the designated IT corridor and Industrial corridor respectively. State Industries Promotion Council of Tamil Nadu (SPICOT) and Electronics Corporation of Tamil Nadu Limited (ELCOT), nodal agencies of state Government, have been actively involved in promotion of industrial/IT parks in the city and various parts of Tamilnadu. SIPCOT Irrungattukottai Industrial Estate, SIPCOT Sriperumbudur Industrial Estate, SIPCOT Oragadam Industrial Park, SIPCOT Siruseri IT Park,

of the notable industrial/ IT parks developed by these nodal

estates, SIPCOT has planned expansion of Irrungattukottai and Oragadam industrial parks. In addition, the city is also experiencing development of large-scale industrial parks by private developers.

Furthermore, large number of infrastructure initiatives has been undertaken by the Government of Tamil Nadu to reduce the infrastructure inadequacies attributed to the increasing population density. Some of the key infrastructure initiatives undertaken are highlighted in the table:

Project Description

Chennai Metro Rail Developed by the CMRL41 , the metro rail project comprises a rail network which will integrate the existing public and private transport in the city including buses, sub-urban trains and the MRTS.42 43:

Washermanpet to Airport: 23.1 kms (14.3 km stretch will be underground and rest will be elevated corridor)

will be elevated corridor)

Outer Ring Road Outer Ring Road is being developed by Chennai Metropolitan Development Authority along the periphery of Chennai Metropolitan Area, providing a ring road access connecting the southern, western and northern parts of the city. The length of outer ring road is estimated

44 and is envisaged between Vandalur in South Chennai and Minjur in North

construction and land acquisition for the second phase is currently under progress.


Chennai has been the commercial hub for South India. The city’s real estate sector has been dominated by requirements

as a consequence of the growth of the IT/ITeS and enginerring

years. The residential property market is showing a gradual shift towards the southern and western suburbs in the recent years,

locations.

coming from this category. The salaried class followed by the self-employed category drives the end-use demand in the city.47 Chennai, predominantly an apartment market, is witnessing a new trend of villa development. The steady demand has pushed the rentals and capital values up across different sub-markets, especially in suburbs.

The rapid industrialization along Sriperumbudur has led to many developers launching integrated township projects. Industrial units and related job opportunities in Ambattur have resulted in new

along the western corridor of Mogappair and Aynambakkam are the sub-areas which have seen a spurt in residential development

by IT/ITeS sector, automobile companies and other manufacturing sector companies.

With a good mix of manufacturing and services industries, Chennai has a well-established foundation in terms of demand for real estate growth. Moreover, the end-user driven market also provides stability to the growth of the sector in the city. With planned growth corridors and infrastructure projects connecting such pockets to other parts of the city, Chennai is well poised for real estate growth in the coming years.

Coimbatore

The Manchester of South India, Coimbatore’s economy is driven by engineering, textiles, hosiery and poultry. In recent years many large companies including TCS, Cognizant, Robert

manufacturing companies such as Madura Garments, Arvind

city. Coimbatore also has presence of IT/ITeS industry with

2011-12.

The steady demand for affordable housing drives the real estate market in Coimbatore. Avinashi Road, Trichy Road and Mettupalayam Road are witnessing development of many projects.

Moreover, various integrated township projects including

in the suburbs. Retail real estate is also witnessing increased development activity.

estate development in the city and surrounding areas include six-laning of the Chengapalli-Neelambur stretch (42 km) on NH-

Similarly, within the city, two key planned infrastructure projects, the

roads and increase the real estate demand in near-by localities.

Kerala

,

to one that is driven by services such as tourism, health and

The growth in the state’s economy has had a positive impact on the real estate sector in the state, which has witnessed heightened activity in the past few years.

Outer Ring Road Metro Allignment

Existing Growth Corridors Future Growth Corridors

N

To Arkonam

Puzhal Lake

Ennore

Cholavaram

Madhavaram

Minjur

Avadi

GUINDY

AAAAAAAvvvvvvaaaddidddidiAmbattur

Poonamallee

Anna Nagar

Meenabakkam

Tambaram

Sriperumbudur

MANALI

Chembarambakkam Lake

PONNERI

GUMMIDIPONDI

PADI, AMBATTUR

SRIPERUMBUDUR

ANNA SALAI

SIRUSERI MAHINDRA WC

ORAGADAM


Source: EY Research


The state is undertaking various infrastructure projects including the proposed high speed rail corridor linking the entire

These projects are further expected to change the real estate landscape in the state substantially.

plan to transform into a high-income state. According to the

education as the new engines of growth. This is expected to trigger increased development of schools, colleges and hospitals in the state. The state is expected to become a hub for multinational companies. IT parks are being developed on a Hub and Spoke model in the state. Technopark-Thiruvananthapuram,

sectors such as construction, manufacturing, shipbuilding, transportation, shipping, seafood, spices, tourism, real estate,

encouraged several large multinational companies to establish

Regulation Act, which will establish a regulatory authority for the real estate sector to regulate the sector and effectively

undertake housing or improvement schemes through joint ventures or PPPs. The private sector on the other hand is practicing segment marketing, with projects being launched exclusively for defense personnel, retired people and alumni of particular institution. Although people continue to prefer individual houses, the apartment concept is picking up in the

Kochi

Thiruvananthapuram. The city is well connected to other parts of the country by road, rail, and air. A few of the prominent national highways connecting the city include NH-17 (to

international airport developed through PPP model in India) connects the city to various national and international destinations such as Dubai, Doha, Colombo, Malaysia, Singapore, etc.

exports. The city has been recognized as one of the major industrial cities in the country. A few of the prominent industrial

the industrial establishments, port related activities including container terminals and warehousing developments are

preferred destination for IT/ITES (information technology and information technology enabled services) companies due to the availability of a highly skilled workforce, good connectivity and

One of the biggest projects being undertaken in the city is

for IT/ITES and other allied services. Infrastructure projects

real estate development in the suburbs and places around

up a realty advisory committee to develop 33 acres of land

Metro. The Greater Cochin Development Authority (GCDA) is planning to develop three major townships in the neighbouring

township.

The city’s residential market, primarily driven by Non Resident Indians (NRIs) residing in the Middle East and Western nations,

effect of the downturn in Middle East. In this scenario, rupee depreciation may trigger the revival of demand for residential

with a large amount of mall space being operational or under

largest mall in India occupying a built-up area of approximately


Thiruvananthapuram

professionals to the city at Technopark. Global IT companies have set up base there leading to a rise in demand for budget apartments. On completion, Technopark will be amongst the largest IT parks in India with a combined built up area of more than 7 million sq.ft.

Majority of development in the city is happening in pockets around Vattiyoorkavu, Vazhuthacaud, Vellayambalam and Technopark. The development of monorail is expected to augment the growth of micro markets, located far away from

has also increased real estate interest in these areas.

South Indian cities have seen major developments in real estate and have become one of the most sought after destinations for companies and working professionals. Apart from the major cities such as Bengaluru, Chennai and Hyderabad several other smaller cities such as Kochi, Coimbatore, Vishakhapatnam and Mysore have emerged as new economic and development hubs. Although the IT/

also home to several PSUs, biotech companies, engineering companies and major automotive players. The residential market with a moderate and uniform price rise is driven more by end users and less by investors. Young population and rising per capita income has made major South Indian cities a preferred destination for retailers which have resulted in several malls in last few years particularly in Bengaluru. Global economic crisis and India’s domestic challenges of

even the South Indian real estate market. However, the Government’s drive to build infrastructure and focus on its core competence will give these states an edge to weather the headwinds.


offer back-ended promote to developer on achieving certain

are dependent on project performance, developers are also comfortable on evaluating such deals.

From a developer’s perspective, minimal end-use restrictions and a considerable funding amount available on investment date provides them the necessary growth capital. The returns to investors are typically off-set by higher returns envisaged from new land acquisitions and the tax break allowed on interest also offer additional incentive to the developer.

Lease rental discounting and sale of leased/ completed assets is also an increasing trend in the industry. Developers with Grade A assets, good quality tenants and strong lease agreements have been able to attract good offers.

Another source of overseas funding made available to

However, this route can be used to fund only low-cost affordable

year.

Government, on its part, is also revaluating policy measures to counter the challenges faced by the industry. Recent changes to

are positive steps in the right direction. Game changers such as FDI in multi brand retail, real estate regulatory bill, land acquisition bill can provide necessary spark to further investor

the Real Estate Investment Trust (REIT) on the Alternative Investment Fund (AIF) platform and is currently working on the structure of REITs, particularly on who would be able to invest in these investment vehicles and on setting the minimum subscription criterion. All these factors are expected to have a

Ever since the sector opened up to FDI in 2005, real estate

local players to an organized set-up with global investors as stakeholders in the industry. The sector is witnessing increasing interest from both developers and investors to pursue alternate channels of fund raising. With progressive measures by both state and private players, the sector is poised for growth in the coming years.

Where is the money? Current real

India is currently ranked twentieth in the list of world’s top real estate investment markets with investment volume of US$ 3.4 billion in 2012.has witnessed increased funding from investors in comparison to the earlier year. For a sector that has witnessed the vagaries of recession, current trends provide an important dipstick to evaluate the sentiments of the industry.

from the pre-recession era, where access to private equity capital was comparatively less challenging and funding was available at land aggregation stage, with funds partnering with realtors to co-develop projects. Furthermore, deal structures

global economic trends.

Challenges due to project sales and increasing timelines for approvals/ completion have limited investor’s ability to have a timely exit. Moreover, fund raising abroad became increasingly

environment, providing further stress to resources.

Effects of recession lead investors to tread a cautious path in

which affected valuations of vanilla equity deals. PE investors channelized their strategy to strengthen exit by emphasizing on developer’s delivery track record, project location, approvals in place and close monitoring of portfolio investment. Furthermore, interest in tier-II city investments also reduced as investors were unable to make the desired returns in their earlier portfolios.

proceeds for construction, impeded the ability to use funds for growth capital such as land acquisition.

Hence, both developers and investors were evaluating alternate structures to the traditional means of equity/ debt

timelines offered requisite comfort on investment multiple and exit. Funding ongoing projects also ring-fenced them from the vagaries involved in project approval timelines. Furthermore, alternate securities such as hard collateral land, corporate/personal guarantees, amongst others provided them comfort.

Foreign investors are also evaluating preferred/ promote return structure with good quality developers. Such deals


Venugopal P Executive Director, Transaction Advisory Services [email protected]

Mahesh Raman Associate Vice President [email protected]

Navya Gambhir Associate Vice President [email protected]

At EY TAS - RE, we:Specialize in PE syndications and M&A with focus on the real estate and hospitality sector

Involved in a number of entity and project level transactions including exit opportunities for various institutional funds

international/ domestic investors for various developers

Work across developers on large strategic joint development/joint venture investments

Our team

in Real Estate and Hospitality sectors

Industry focussed team working closely with all

Extensively worked on closing large M&A and fund raising deals in the sector


Joint Development Arrangement (JDA)The Indian realty sector has been facing the headwinds from

the economy. In such a scenario, many leading real estate

joint ventures with land owners as developers refrained from investing in new land to reduce the pressure on their cash position and interest payments. Under a JDA model, developers are able to sign more projects with lower capital investment.

Under the JDA, the land owner is responsible for all land related matters and the developer assumes the responsibility of obtaining approvals, property development, launching and marketing the project. The JDA model is designed depending on various factors such as land prices, products to be

responsibilities undertaken by both parties. The land owner may receive the consideration for land in various forms such as an upfront refundable/ non-refundable deposit, sharing of gross revenue, sharing of constructed area or a combination thereof. In the case of sharing revenue from the built-up space, it is the responsibility of the developer to develop the parcel of land jointly with the land owner and sell or lease the built-up space to third-party purchasers and share the proceeds in an agreed ratio.

The JDA model is increasingly being used in redevelopment and slum-rehabilitation projects in Mumbai. They are also being used where developer plans to operate under the ‘‘asset-light’’ model.

However, in the recent past, there have been tax issues around JDAs, whereby a question has arisen as to whether the land owner should be taxed on mere execution of JDA or should be taxed only when the area/ revenue share is received. Execution of JDA is often contended to be a transfer of the land by the land owner even where:

Land owner merely provides a license to the developer to enter upon the property for limited purpose of construction and the continuity of such license is dependent upon discharge of all obligations on timely basis by the developer; and

JDA provides that the possession of built up area cannot be transferred to the buyers unless the developer discharges all its obligations.

Consequently, the land owner is liable to pay capital gains tax on accrual/ notional basis, where land is held as a capital asset.

Clarity on this point is likely to make JDAs more attractive thereby increasing the potential of development of otherwise vacant and unproductive land.

Another issue in such agreements is whether the JDA itself

purposes. An AoP is created according to the Indian tax law as a separate taxable entity. Essentially an AoP is said to have been created where two or more persons come together for a common cause with common scope of work, common liabilities

interpretation on whether a JDA constitutes an AoP. An AoP suffers from some inherent adverse tax consequences such as (i) double taxation where one of the members is a company (ii) un-availability of loss carry forward to any member (iii) dispute around deduction of expenditure incurred by members on behalf of a AoP etc. Therefore clarity around this through

agreements.

Regulatory changes expected to increase transparency The Indian real estate sector is expected to receive further impetus as two crucial regulatory bills - the Land Acquisition

the real estate sector in India, by increasing transparency and accountability.

New land acquisition bill

and transparency in land acquisition, rehabilitation and

compensation for their land prompted the GoI to pass this

compensation to land owners.

been debated and several voices have been raised periodically to bring transformational changes in it from the perspective of compensation to landowners and growth prospects in modern India.


Land acquisition is critical for a progressive economy such as India’s, where infrastructure development, expanding industries and building homes for the growing urban population is the key to maintaining the country’s growth. Its land acquisition policy, along with facilitating acquisition of land for economic growth, should also give due importance to reasonable compensation to landowners.

Key issues Bill regulations

Compensation In rural areas, compensation will be four times the market value of the land (based on sale deeds of similar land transactions in the last three years) and twice the market value of land in urban areas.

Size of land for implementation of R&R package

�

R&R entitlements (for landowners)

�an annuity of INR2,000 paid per month to each family for 20 years, with an appropriate index for

�

�the landowners in proportion to the land acquired from them at a price equal to the cost of the acquisition and that of development

�

whose land had been acquired

Limitations on land usage and acquisition

�

Change in usage after award of land will not be permitted. Land will be returned to the landowner if

�

Timelines �

settlements are completed.


Real Estate Regulation and Development BillWith an aim to protect the interest of customers, promote fair play in real estate transactions and ensure timely delivery of projects, the Government of India (GoI) is seeking to pass the

Parliament after it received the Cabinet approval in June 2013. It proposes setting up a regulator for the real estate sector in India.

Major clauses in the Bill:

Developers will have to register their project with a real estate regulatory authority. Promoters will have to disclose some standard details of the project along with names of brokers who will represent the project. Developers will sell the project only after all necessary approvals are in place and the project has been registered. The Regulatory Authority will have to clear or

Developers have to open a separate bank account for each

authority) of the buyers money. This amount will have to be used only for the construction of that particular project.

cancel its booking and claim the full amount along with interest for delays in the project.

of up to three years for misrepresentation of facts to customers or non-compliance with the Act.

which will hear real estate cases and will have the powers of a civil court. It also proposes setting up of a central and state level real estate regulatory authority to exercise the powers conferred on it and perform the functions assigned under the act.

Special Economic Zones (Amendment) Rules, 2013

12 August 2013, amended the Special Economic Zones Rules,

for SEZs. As per the new guidelines, area required to develop SEZ in various sectors have been reduced as follows:

�1,000 Hectares)

�100 Hectares)

�hectares alongwith requirement for minimum built-up area as applicable for IT/ ITES SEZs

�(reduced from existing 10 Hectares). However requirement of minimum built up area of 100,000 sq. mt in Class A

other cities applicable

Further, the pre-existing structures not in commercial use would

in SEZ and the concept of sectoral broad-banding has been

under the same sector category. A graded scaling provision has also been introduced by virtue of which developers could

in existing SEZs and for incremental contiguous land parcels

Further, the guidelines also allow SEZ Units to opt out of a SEZ by transferring its assets and liabilities to another person by way of transfer of ownership, including sale of such units, along with the duty obligations, subject to certain conditions.


IT enabled business transformation in the real estate sectorExecutives across industries are employing the latest digital

and operating models.

In line with this trend, real estate (RE) companies have also recently started using digital technologies. The shift is evident both internally and externally in the sector.

�social channels are challenging traditional methods

to Realty Aggregators (RA) who keep emerging technologies in the forefront of their engagement

This trend, in turn, is fueled by changing:

a. Customer demographics (earning progression and rise of the middle class have drastically reduced the

tier I and tier II cities and in semi-urban areas; real estate is perceived as a great investment)

b. Customer behavior (convenience, information gathering, peer discussion, ease in engagement,

tools) from pre to post purchase lifecycle

c. Technology adoption: affordability and penetration is increasing exponentially across customer segments (tablets have become common comparison, collaboration and discussion tools and are being used by families anytime and anywhere, including in coffee shops)

industries, along with both work- (such as IT, ITeS population) and leisure-related foreign travel, is raising customer expectations

In this dynamic and ever-changing environment, where people’s voice has found a social but strong forum along with mobility, featuring enormous data crunching power and visualization in the hands of the customer, digital transformation is a key enabler.

RE players that are seeking success in their current and new geographical turfs, looking to forge a long-term relationships

re-shape their IT-enabled business strategy by:

�

a. Creating an ecosystem enabled with digital tools and platforms to engage:

demographics, life stage and lifestyle, property

buyer details using rich graphical representation

�effectiveness

a. Integrating traditional and new digital channels to improve customer engagement

i. Leverage crowd-sourcing to ideate with potential home buyers and understand their needs and preferences in terms of the community that they want to live in

b. Enabling internal teams to leverage emerging technologies to answer queries such as:

have or how much sunlight will the kitchen and dining area get through the day?

ii. What sort of an impact is expected on the payment cycle with respect to changing customer income/expenses, interest rates over loan tenure?

Enhancing customer experience

a. Creating and delivering a viable partner ecosystem that will improve the experience journey of customers

i. Leverage augmented reality (during furniture selection), tablet apps (for electrical, plumbing and other home customizations) and integrate technology systems with those of lending institutions

b. Leveraging customers to help you sell better in your new ventures in new territories

i. Introducing transparencies through virtual connects between prospective and existing home owners and leveraging their social circles to garner referrals and a new strong prospect base


At EY IT Transformation, we:Help entities maximize value from their existing and future IT investments across the enterprise

business outcome by institutionalizing leading practices and measuring technology investments

approaches and outsourcing shared services aligning business strategy and cost optimization

Focus on emerging technologies and enable businesses to harness their potential

Our team:IT professionals who can advise on technology-enabled client transformations and business improvement activities

Specialist teams focusing on digital transformation, including social media, mobility, cloud and analytics

Transformation experts with experience in the RE and Infrastructure sectors

Asheesh Malhotra Partner, IT Transformation [email protected]

Joydeep Dutta Manager, IT Transformation [email protected]


exposure

Organized crime networks exploit labor-intensive sectors such as construction and infrastructure.

Funding by government, public or private partnerships, or by donor agencies, is also likely to be exposed to improper payments.

These fraud risks may be addressed by:

Conducting pro-active fraud risk assessments - considering the type and location of projects undertaken so that the

mitigating controls (whether preventive or responsive) to be put in place

Conducting due diligence on contractors, subcontractors and agents, with continued monitoring performed to make sure they are not indulging in fraudulent activities

Proactively analyzing operational data on an ongoing basis and using forensic data analytics to detect transactions that indicate a heightened risk of fraud

Undertaking vetting of key employees, contractors or partners, especially those unknown to the company, for example, in joint venture situations; in our recent Global

approved supplier database and almost half failed to check the ownership or backgrounds of third-party suppliers.

Fraud vulnerability and mitigation in the real estate sectorThe Indian real estate sector has experienced an upward trend, in spite of the challenges faced by the economy or the global woes. In the last few years, the industry is also moving toward being an organized sector. As the sector witnesses increased investments, it should also be ready to face challenges at a global platform. One such challenge is that of fraud and corruption and compliance toward several corruption-related acts. The Indian real estate industry is likely to be prone to such challenges as number of large-sized projects increases the risk of fraud and corruption. Recent cases demonstrate that

to a varied number of fraud risks spanning areas from revenue and procurement to facilities. The note below summarizes some key fraud and corruption-related challenges faced by the industry currently, and ways to prevent and deal with such challenges.

Several factors unique to the RE industry makes it vulnerable to various types of fraud.

Obtaining planning permissions and licenses is a lengthy process and is vulnerable to abuse.

Regular use of subcontractors and consultants or agents is prevalent, increasing the risk of third parties committing fraud.

of a contract. These negotiations offer opportunities for consultants or clients to attempt to leverage payments or

Erroneous work certi

cation

Bribery

Mis-statement of Financials

Misappropriation of Assets

Inadequate Anti-Fraud Policy

Inadequate Internal controls

Insu cient Tone at the Top

Lack of Whistle blower Mechanism

Inadequate delegation of authority

Inadequate Whistle blower Mechanism

2

Opportunity

Pressure

Rationalization Fraud Risk

1 3

1

31

21


At EY FIDS, we:Help entities investigate alleged, suspected, admitted or detected frauds

Help companies in the development and implementation of anti-fraud services, including fraud response plans, fraud risk review of policies, and review of controls for avoidance and detection of fraud

Conduct diagnostic reviews on behalf of PE funds, banks and regulators and other third parties prior to M&A activities on real estate companies

companies

Provide dispute advisory services for and on behalf of our clients

Our team:

experience in the Real Estate and Infrastructure sectors

intelligence (for conducting interviews, gathering market intelligence)

in data analytics, software and database management, IT infrastructure and controls, disk imaging and digital evidence recovery

Anil Kona Partner, Fraud Investigation and Dispute Services [email protected]

Siddharth Sharma Senior Manager, Fraud Investigation and Dispute Services [email protected]


The cause for migration of these value creators from their current job to more attractive employment opportunities is the desire to maximize their “net

Smart organizations are transforming this age-old static, paternalistic employment relationship into

to both employers and employees. This may entail providing employees with information, resources and support for long-term career development, creating high risk/high reward opportunities to encourage the spirit of entrepreneurial, and basing pay and rewards of meaningful contribution. These strategies have helped organizations create a strong and differentiated employer brand that helps them effectively compete for scarce resources.

b. Shortage of critical skills: While the Government of India is increasing its spend on infrastructure (approx.

of civil engineers graduating from colleges has only

younger population is increasingly looking away from making a career in civil engineering, translating into low talent availability.

This has put additional pressure on RE organizations to review their training and capability development processes and succession planning to create a robust in-house talent pipeline. Some of them are developing mechanisms (internships, etc.) to partner with local

skill and leadership development are essential to ensure the availability of good talent to support business.

c. HR as an administration rather than a business partner: The Human Resource (HR) department has traditionally been set up merely as an administrative support system. In progressive organizations, on the other hand, HR has become a true business partner, constantly engaged in streamlining talent acquisition, development and retention processes to support business strategy.

Having a strategic view of the role of HR, setting up robust HR systems and enabling the department to function as a business partner are essential contributors to business success, growth and sustainability. In fact, the seriousness, spirit and speed with which this happens will differentiate industry leaders from reluctant followers.

Effective workforce management: option or opportunity?

a new-age model for organization performance management. It provided a holistic strategy execution framework, propagating

between long-term essentials and short-term necessities has been fought for a long time by entrepreneurs and corporates in the Indian real estate industry amid constant pressure on margins due to an increase in customer expectations (e.g., RE regulation and development bill 2013); low government support (e.g., tedious processes, high lead time in obtaining approvals); increase in material cost; and low liquidity (e.g., increase in loan rates by lenders). In such a scenario, promoters and leaders often focus most of their energy on achieving immediate results, thereby neglecting long-term organization strengthening.

Effective workforce management is a key pillar to ensure a

and integrated framework that involves both interplay and alignment of multiple HR and business elements. If neglected for long, it would become a major restrain hampering RE companies’ ability to reach their true potential. Nevertheless, certain organizations have looked at such troubled times as an

has worked with many such organizations and has helped them develop and implement workforce management framework,

business ambition and strategy.

to identify challenges and strengthen focus on undertaking effective workforce management in RE organizations.

a. Weak value proposition for the solid contributors: RE has traditionally been viewed as a sector where “hot and

relevance. However, organizations have increasingly started to understand the importance of enhanced team productivity, transparency and professional skills to attract and retain critical talent. As a consequence, employees who create the greatest value in the organization now enjoy a seller’s labor market.


At EY People & Organization (P&O), we:

Help you make the most of your human capital investment and facilitate alignment of your HR plans, programs and systems with your business strategy

Deliver services across the entire HR spectrum ranging from organization design, HR process design, performance management, pay and rewards, talent management, leadership development, employee engagement and transaction support to HR transformation

Design and support implementation for business outcomes

Follow a collaborative approach that engages your business leaders to challenge the status quo and make a leap

Our team:

In-depth industry and advisory experience

Human Resources

value chain in the Real Estate and Infrastructure sectors

Strong delivery experience across public and private organizations across the globe

Proven track record of building long-lasting working relationships with entrepreneurs and supporting them through their journey

Rajiv Krishnan Partner, People & Organization [email protected]

Alpana Priyabhashini Dutta Senior Manager, People & Organization [email protected]


Service Tax matters: real estate sectorReal estate and infrastructure industry play a major role in the development of the Indian economy. The real estate sector in India has come a long way by becoming one of the fastest growing markets in the world. The growth of the industry is attributed mainly to a large population base, rising income level and rapid urbanization.

Over time, changes have been made in the Service Tax legislation with respect to the Real Estate Sector regarding various issues such as abatement on construction contracts, valuation for levy of tax, assessment of tax etc. However, there are certain issues which are still ambiguous and needs resolution. This article seeks to cover three such issues that are grappling the real estate industry.

Firstly, the developers are entitled to claim abatement for the purpose of payment of Service tax. The issue is whether additional charges collected such as parking charges, preferential location, club membership, etc. can be considered as ‘naturally bundled’ with construction services and be eligible for claim of abatement as well. In such cases, the key test will be to determine if such services are incidental to the construction activity, being provided as a single package to the customer. That being the case, it may be possible to take a view that such services are incidental to the main service and be taxable at the abated value. However, as per a recent note issued by the Commissioner, Service tax internally to other Additional / Deputy / Assistant Commissioners, ‘preferential location charges’ cannot be treated as ‘bundled’ with construction services to be eligible for abatement. Therefore, the question remains unanswered whether all such services are eligible for the abatement along with the construction service.

Secondly, doubts are prevalent as to whether Service tax is

lease). Towards this issue, CESTAT in the case of Greater Noida Industrial Development Authority has granted interim relief treating long term lease as akin to sale and thus, there could arise a line of interpretation on non-applicability of service tax on such long term lease. However, under the negative list regime, since long term lease of land (akin to sale) is not

the question remains whether such lease should be liable to service tax or not.

Thirdly, under the negative list regime, service tax is payable

be a ‘Declared service’. The question is whether Service tax is leviable on re-sale of ‘under-construction’ property by one

case, it can be seen that the buyer himself does not render any service in relation to construction though the builder continues to provide the construction related services. However, in the

would continue with the service tax authorities on applicability / non-applicability of service tax on sale of under-construction property.

service tax law post the introduction of Negative list regime, issues continue to grapple the real estate industry and the customers at large. It needs to be seen whether the proposed GST regime will help in further simplifying the tax structure for the real estate industry.

Income-tax controversy on

recessionary pressures is the rising challenge for corporates to raise low-cost funds, resulting in an increasing reliance on

is however surrounded by certain tax pressure points that need to be carefully managed.

Under the Indian domestic tax law, loans or advances made by

voting rights) or to a co-subsidiary where such shareholder

deemed to be dividend distributed by the company, up to the

advance will be subject to tax, as dividend, in the hands of the

Given this, transfer of funds from cash rich subsidiaries or SPVs that have completed and monetized real estate projects could trigger such deemed dividend provisions.

is the disallowance of interest costs incurred by companies on debt borrowed, where such funds have been utilized by such a company for the following purposes: [i] onward investment in share capital of a company, on the ground that dividend income earned from such investments is tax exempt; and [ii] onward lending of funds to subsidiaries, on the ground that investment

arrangements for real estate groups that have multiple entity structures need to be carefully structured.


At EY Tax, weHelp companies set-up operations in India by advising them on various tax related issues

Help entities conceptualize and design tax and regulatory

Assist clients in maximizing tax deductions and comprehensive range of corporate law and exchange control services

Assist clients in structuring investment and obtaining investment approvals

Offer international tax services that successfully align tax planning objectives with business operations

Offer Transfer Pricing services evaluating alternative business structures and providing support in meeting compliance requirements

Specializes in providing assistance on tax matters in proceedings before DRP’s, CIT(A)’s, Tribunals, High Courts, the Supreme Court and AAR’s(Tax Litigation Advisory Group)

Assist in tax issues related to income and wealth taxes, corporate and allied laws, exchange control and India inbound tax advisory

Riad Joseph

Direct tax [email protected]

B. Sriram

Indirect tax [email protected]

Vivek Pachisia

Indirect tax [email protected]


Emerging asset classes in IndiaThe Indian real estate growth story till 2000 had largely been focused around residential, commercial and industrial segments. Since then, developers have been exploring several new asset classes, such as affordable housing, senior living, amusement parks, education hubs and logistics hubs, depending on the opportunities prevalent in the market. Affordable housing and senior housing segments cater to

and age respectively. Medical city concept is a more recent phenomenon that is gaining visibility on the back of extensive budgetary focus on health and family welfare by the state governments. Looking at these emerging asset classes as new and promising investment opportunities, many private players have stepped in to explore the potential in these markets. Some of these new developments could even boost the economy of the nearby areas by offering employment.

Affordable housing

Affordable housing has been the buzzword since the global economic slowdown, with the state governments and developers both increasing their focus on this segment. The Ministry of Housing and Urban Poverty Alleviation (MHUPA)

square feet for economically weaker sections (EWS) to 1,200 square feet for middle income group (MIG), and where the rent

income of the household. The rising raw material costs and

viability of these projects. In addition, long approval processes and pressure on the margins are some other challenges facing the affordable housing segment.

The GoI has taken various initiatives for the development of affordable housing in the country. Under the Interest Subsidy Scheme for Housing the Urban Poor (ISHUP), the GoI provides

3 years.

As almost all of these projects are located in suburbs, government support in terms of adequate infrastructure (such as transportation, sewage, water and power facilities) and connectivity to the main city are likely to drive demand in this sector.and Singapore have adopted successful models to provide affordable housing in their countries. In Singapore a person joining a job applies to a state undertaking and receives a house

wherein the funds for the properties are provided by public banks and the houses are provided to families who earn in certain multiples of minimum wages. India can also perhaps look at innovative models to promote the growth of this segment.

StateHousing shortage

(million)% decrease

2007 2012

Andhra Pradesh

1.27

1.02

Tamil Nadu

Total (South India)

Total (India) 24.71 18.78 24%

Source: Ministry of Housing and Urban Poverty Alleviation


Senior housing

One of India’s strengths, its young population, has started aging. According to the projections by the Census of India,

Exhibit: percentage of senior population (age>60) in South India, 2001, 2011 and 2021

StateSenior population as % of

total population

2001 (census)

2011 (census)

2021 (projected)

Andhra Pradesh

Tamil Nadu

Total (South India)

8.2% 9.6% 13.5%

As nuclear families become the norm and young people migrate to other cities and countries looking for job opportunities, demand for senior living has become incipient. It is, however, still an emerging concept in India as senior living evokes a negative connotation.

However, the senior population today, is much less dependent on their children and prefers to lead their lives as it was before retirement, some even continuing to work or starting new careers. They are becoming increasingly independent, are

to a 2004 National Sample Survey (NSS) study, GoI, nearly

Pradesh and Tamil Nadu either lived alone or only with their

also established that more than half of the senior population in South India is economically independent. However, they will have special requirements in housing, and this provides an opportunity for senior living spaces in the country. The

residential space, but extend to the service aspects, such as nutrition, security, health care and emotional needs of companionship and overcoming the social stigma of living in

a senior community. Senior housing developers take care that the nutritional and health care needs are attended by provision of skilled nursing facilities and in-house catering. Security

systems and 24x7 emergency services. The housing complexes also strive to maintain an active social life by involving the residents in various activities.

Several developers have recognized this opportunity and launched projects, most of which are in the suburbs. As of April 2013, out of a total of 30 senior living projects proposed

The GoI has also come up with initiatives to promote the segment by forming an Association of Senior Living in India (ASLI) and an Integrated Programme for Older Persons (IPOP). The IPOP was introduced with the objective of improving the quality of life of senior citizens by providing basic amenities such as shelter, food, medical care and entertainment

maintaining old age homes and day care centres.various housing schemes for urban and rural lower income

for senior citizens under the National Policy on Senior Citizens 2011. The scheme also proposes provision of loans for purchase of houses to the senior citizens.70 Private developers have also been working towards providing reverse mortgage loans to senior citizens in collaboration with banks.71 Despite

loans, senior housing is still perceived to be unaffordable as

can, however, be changed with the introduction of innovative

countries. The Senior Living segment is expected to witness growth in the future as it gains acceptance in the society.

Entertainment real estate

Entertainment related real estate such as sports cities and amusement parks are unique emerging asset classes in India.

three decades ago in the form of ‘games villages’ developed

and National Games and more recently to host the 2010 Commonwealth Games. The games villages primarily focus on dwellings and sports facilities for the participating athletes and post the event the dwellings are either converted into government quarters or sold by the developers usually to upmarket clients.


State Number

Andhra Pradesh

2

Tamil Nadu

Total 42

The latest games village, currently under construction in

use pre-fabricated housing technology, in line with the planned

to be disassembled after the games and will be re-used in the 72

Games Villages soon paved the way for the next generation sports related real estate including ‘sports cities’ and sports centric residential townships.73

developed in Noida around an international racing circuit and world-class stadiums, has pioneered the concept of large sports cities in India. Similar sports cities are being planned near

by a large corporate group. These sports cities are planned with the purpose of promoting sports by providing world-class training facilities to the sportspersons.74

Another trend which is gaining momentum is the sports-themed residential townships, which are aimed at providing the residents access to a range of sports facilities to create dynamic and vibrant communities. Sports-themed townships, particularly golf, are coming up in various parts of South

townships have given birth to new associations and tie ups between sports facilities or service providers and real estate developers.

Apart from this, the amusement park industry is still at a nascent stage in India, although it has been present for more

registered amusement parks in India has grown at a CAGR

number to reach 300 by 2020. Although the amusements park

Chennai. Currently, out of the total registered amusement parks in India, 42 are located in the south Indian states.

A recent trend in this segment has been to develop theme-based amusement parks, particularly related to Indian cinema. These are developed on similar lines as the ones owned by

Ramoji Film City in Hyderabad and the Innovative Film City

reserved a major portion for shooting movies, and instead of disassembling the sets, use them in their amusement parks.

In case of the amusement park segment, one of the challenges for growth is lack of uniform taxation across states. Each state

ensure substantial foreign investments.

Sports cities and amusement parks require large parcels of land, well connected to the serving urban area. Such land parcels, even if available, will most likely be agricultural land. Setting up such parks requires obtaining a large number of clearances, which poses bureaucratic problems. Lack of infrastructure, including roads and transport facilities, power

challenges to development of such sports and leisure facilities.

Transit-oriented real estate

Rapid development of the large-scale infrastructure facilities, such as the airports, dedicated freight corridors and metros has facilitated the growth of transit oriented real estate (TORE) in the country. India is witnessing the emergence of new concepts such as township built around airports known as ‘aerotropolis’

major airport.

GMR Hyderabad International Airport Limited (GHIAL) in 2007. Since then, the concept has been gaining ground as two more

Airport Limited (CIAL) around the airports. These airport cities are primarily planned to increase non-aeronautical revenues, thereby relieving the burden off the revenue streams from aeronautical services, which are usually shared in PPP projects. Assets classes such as airport based Special Economic Zones

hubs and their hinterland, but also bring the tax incentives to the manufacturing and warehousing industries. The GoI has

Exhibit: state-wise number of amusement parks77


Exhibit: planned and potential aerotropolises (airport cities) in South India85

Aerotropolis (Planned) State Company Area allotted (acres)Total airport area (acres)

Hyderabad AP GHIAL 1,000Bengaluru 4,000Kochi CIAL 1,300

Potential

Trivandrum Kerala - - 750*Coimbatore Tamil Nadu - - 613*Mangalore Karnataka - - 580*Vizag AP - - 505*

The Airports Authority of India (AAI) and Union Ministry of Civil Aviation (MCA) have extended the vertical limit around

within a radius of 20 km. This measure will facilitate vertical development. 84

also planned aero parks or Integrated Aerospace Eco System

respectively. These aero parks will enable global and domestic players to design, manufacture and maintain all types of aircraft for both civilian and military programs. Integrated industrial development are planned to be set up around these manufacturing hubs.

India has recently developed a new plan, the Peninsular Region Industrial Development Corridor (PRIDe) with its

which are proposed to be developed on the same lines as the Delhi-Mumbai Industrial Corridor (DMIC). These would have integrated real estate development and infrastructure

corridors.

Industrial hubs planned along the PRIDe corridor have brought in foreign investments and their technical cooperation. The

manufacturing zone (NIMZ), having an integrated industrial

Cooperation Agency (JICA).

Chittor in AP and Sriperambudur in Tamil Nadu.

Apart from getting clearances from the Government and land acquisition issues, one of the major challenges facing the TORE is setting up infrastructure on a massive scale to support such development, including transport, water and wastewater and power. The Government is taking active steps to alleviate this issue. The National Manufacturing Policy 2013 embodies an easy exit policy and single window clearance in the NIMZs. The Government has also undertaken preliminary engineering

Corridor (Delhi to Chennai) and South Corridor (Chennai to Goa), in order to expand the concept of TORE.

Education real estate

The GoI has constantly maintained a keen focus on developing the country’s education sector. Traditionally, education centric-development has taken place in the form of housing and local shopping complexes in universities and institute campuses largely funded and provided by the university authorities for the students, teaching and the non-teaching staff.

Educational hubs or university towns have been one of the oldest townships in the country. Aligarh in Uttar Pradesh and Vallabh Vidyanagar in Gujarat are examples of education-driven agglomerations. In South India, Coimbatore city is home to 27 engineering colleges, more than 70 arts and science colleges

impact on the city’s development.

village to a university town on the back of development of Manipal University.

However, India still needs to have world-class integrated education cities for providing quality education alongwith all the requisite amenities to students and faculties.


The Education City near Doha in Qatar is one such example,

houses various international universities including Virginia Commonwealth University, Carnegie Mellon University and Texas A&M University. These education-driven communities have single and multi-family residential apartments, dormitories, shopping malls and well-developed infrastructure.

developers engaged in the student housing development, are now seeing the sector as a relatively more stable investment.

India too, needs an organized education-oriented residential and commercial real estate market, as the future of this

over the next decade. In addition to the proposed expansion of IITs, IIMs and other reputed educational institutions, the private sector higher education industry is expected to build around 10 million square feet of educational institutions over the next few years.

Primary, higher and secondary schools have also started placing proximity of residence as an admission criterion. Most

However, the development of this segment, especially

support. Additionally, funding for integrated education-based developments could also partially come from organizations such as the Housing and Urban Development Corporation

corporates and institutions’ alumni. The underpinning idea is to not only build a world-class physical infrastructure for the students, but also to attract and retain good faculty, for the

Health care real estate

the end of 2012, and is expected to double by 2017.2007 and 2012, the total health expenditure in the country has

However, as compared to other countries, the scenario in India is still below par.

The country has witnessed growth in the development of physical infrastructure such as hospitals and research institutes.

industry revenues, and the private sector constitutes around

Mega projects such as the Apollo Health City in Hyderbad,

Health City and Global Health City in Chennai have come up in South India. Such projects are spread across large parcels of

100

Apart from multi-specialty service centers, these ‘health cities’ or ‘medical cities’ include residential living for the staff and student dormitories. These health cities also attract other real estate development such as serviced apartments and hotels for medical tourists and retail space for food and other outlets in and around the complex. More health cities are coming up

Government of Tamil Nadu has planned to build a ‘medicity’ on PPP model.101

The GoI has taken several initiatives to encourage large

of the Income Tax Act has been extended to new hospitals with more than 100 beds set up in rural areas, and will be entitled to

is also exempted from countervailing duty. Furthermore, the GoI

the automatic route. The Planning Commission has increased

102

This segment presents a bright outlook for the region as medical tourism gains ground. Chennai, termed as ‘India’s health capital’,

in 2012, as 200 foreign patients visited the city every day.103

104 which will result in higher private investments in this sector.

These emerging asset classes are expected to garner increased interest from both developers and investors as they gain popularity. Affordable housing has already gained ground and is part of the product mix of several developers. Unlike affordable housing, the other asset classes including senior living, entertainment, health care, education and transit oriented real estate are still niche concepts in India but with

support infrastructure will help these asset classes change the dynamics of the real estate market in several cities. Given the large size of such projects, state support and partnership provides impetus for such developments. Innovative models and PPPs are expected to have a positive impact on the sector, as such models have been tried and tested internationally.


1.

2.

3.

4.

SEZ India website, http://www.sezindia.nic.in/writereaddata/pdf/ListofoperationalSEZs.pdf

7.

STPI 2010-11

10. Department of Industrial Policy and Promotion website

11. Census 2011

12.

13.

14. Census 2011

17.

August 2013.

20.

21.

22.

23.

24.

All dates mentioned in this section of the report are based on inputs received from public sources. Also, it should be noted that these are based on current status of the project and are subject to change.

27.

30. accessed 30 August 2013


31.

32.

33.

34.

37.

40.

41.

42.

43.

44.

47.

Ministry of Health and Family Welfare, accessed on 30 August 2013.

August 2013.

accessed 2 September 2013

website, http://mhupa.gov.in/ministry/housing/HOUSINGSHORTAGE-REPT.pdf, accessed 23 August 2013; “Report of the Technical Group on Estimation of

shortage.pdf, accessed 23 August 2013


accessed 23 August 2013

Programme Implementation website, http://mospi.nic.in/mospi_new/upload/elderly_in_india.pdf, accessed 3 September 2013

india.pdf, accessed 3 September 2013

india.pdf, accessed 3 September 2013

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